Social Security Skinny
Social Security spending and the skinny on the Social Security Trust Fund.
With the new administration and Congress preparing for budget discussions, Social Security’s future will inevitably be part of the conversation.
A key reason: the old age portion of Social Security spends about $1.3 trillion a year alone, or 19% of all federal spending. That’s a big number when contemplating how to reduce today’s federal budget deficit and debt.
Opponents of Social Security budget cuts could legitimately argue that current revenue projections and Social Security Trust Fund reserves provide a safety net for the program, ensuring benefits remain funded at least for the next decade. Indeed, the Trust Fund’s trustees, in their most recent Trust Fund report, held that “asset reserves” will not be depleted from the Trust Fund until 2035 under current policy.
The Skinny
A trust fund is a financial accounting and legal mechanism used to ensure the effective management of resources until ready for distribution to beneficiaries. Effective management of private trust funds includes investment in hard assets and other sensible (preferably relatively safe) investment vehicles.
When it comes to federal trust funds, there is no money sitting in a financial account backed by assets other than (for the most part) the full faith and credit of the United States government. The concept of a Social Security Trust Fund can be meaningful, certainly, in guiding sensible financial planning and policy for the program. But this tool doesn’t mean much in the context of the current financial condition of the federal budget.
Social Security Trust Fund reserves are not “walled off” in a bank somewhere backed by assets and waiting to be spent only on Social Security. The money is available in the general pool of funds of the U.S. Treasury. Tax withholding revenue for Social Security that came in, or is coming in, goes to everything that needs to be bought for the government on any given day, month, or year.
In fact, every dime that has been received from workers for Social Security has already been spent/invested in the public. Much of that money cannot be extracted back out for this program, except through limited sales of public assets or additional taxes, fees, or other revenue measures on individuals and business.
This reality raises an important question: how does today’s Social Security affect today’s federal budget condition?
The Bottom Line
Tax withholding revenue that comes in today from workers for Social Security is not for the users of Social Security tomorrow. Today’s revenue is for the users of right now. And, if the revenue of today is not enough to cover the costs of the program today, then that fiscal condition impacts the federal budget deficit and federal borrowing and debt today.
During FY 2024, the old age portion of Social Security took in nearly $1.1 trillion in revenue, but spent nearly $1.3 trillion. That’s about a $200 billion hit to the federal budget deficit right now (which totaled $1.8 trillion for FY 2024).
Take Away
Any decision for addressing federal spending challenges partly through Social Security is in the hands of the new Congress and Administration. When considering if Social Security spending be addressed given the deficit, so many considerations will need to be taken into account.
The truth, however, is that such considerations should not only be in the context of concern about the impact on beneficiaries and future program spending trends, but must also consider the impact on fiscal conditions today.